The July Jobs Report was released last Friday 8/6. Employers added 943,000 jobs, which is the fastest job growth we’ve seen since last summer, indicating that the labor market recovery is continuing full steam ahead. Despite COVID continuing to rear its ugly head, businesses appear confident in their ability to navigate potential future disruptions – a sharp contrast from the fear and panic that gripped the labor market last spring.
·Overall unemployment rate decreased to
5.4%from
5.9% in at the end of June
·The rate for college-degreed workers aged 25+ dropped to
3.1%from
3.5%in June
·
943,000jobs were added in July, including 60,000 professional and business services jobs
·Revisions to May and June figures showed that
1,552,000jobs were added during those two months, resulting in a net positive adjustment of
119,000compared with the figures that were originally reported
Analysts and economists were thrilled with the July report. The headline figures were fantastic, and as Heidi Shierholz from the Economic Policy Institute put it: “Even with some slowing from this pace of job growth, we will be back to pre-Covid health by the end of 2022 – a recovery *five times* as fast as the recovery following the Great Recession.” Considering the magnitude of the shock last spring, this would represent an incredible turnaround.
It’s not just the headline figures that have labor-market watchers excited. Key statistics that capture the underlying health of the labor market are also trending in the right direction. Both the number of long-term unemployed individuals (defined as out-of-work for 27+ weeks) and the number of individuals who identify as permanently unemployed are falling quickly, which is critical. During recessions, economists generally worry about labor market “scarring” – long-term negative effects resulting from a short-term shock. Because it is generally harder for individuals to find work the longer they have been unemployed or underemployed, scarring is most severe when long-term unemployment is persistent. The fact that we may be able to avoid this fate is absolutely cause for celebration.
Unfortunately, it’s not all good news. The labor market – and thus, the prospect of a rapid, full-scale economic recovery – is being held back by supply constraints. The labor force participation rate increased only slightly month-over-month, from 61.6% to 61.7%, and remains well below the pre-pandemic norm of around 63%. There are likely many factors contributing to supply constraints, and it will be up to both companies and policymakers to determine how best to incentivize workers back into the labor pool.
Employers are primarily leveraging two tools to attract and retain talent: salary increases and remote-work flexibility. The first will likely have lasting impacts. Goldman Sachs made headlines last week when it announced it would increase first-year analyst salaries by nearly 30% to $110k, and while six-figure entry-level jobs may be reserved for the crème de la crème of Wall Street, it’s representative of a trend that is impacting firms of all sizes, across all industries, and throughout the entire U.S.
The long-term implications of remote-work flexibility are less clear. Both existing staff and potential candidates are practically demanding this flexibility in the short term, and are unlikely to give up that perk willingly, even once the pandemic is in the rear view. However, remote work has its downsides. New employees miss out on valuable facetime with managers when they work from home. Studies have shown that eliminating informal interactions (i.e., water cooler banter) reduces creativity and new ideas. Company leaders worry about a persistent talent gap, or a scenario where the workforce is split into two siloed camps: office jockeys vs. telecommuters.
Bottom line: the labor market, while trending in the right direction, is tighter than the headline figures may suggest. Firms are competing aggressively for talent, causing salaries to rise across the board and forcing employers to consider important tradeoffs between attracting talent and employee development.
If you have additional questions about what we’re seeing in the local market, or if there’s anything we can do to assist from a personnel standpoint – whether it’s direct hire, temp-to-hire, contractor, or consultant – please don’t hesitate to reach out, I’d be more than happy to help.
Hunter Lent, CPA
Client Service Director
[email protected]
Click here to book a meeting with Hunter Lent
Connect with us:
LinkedIn |
Facebook |
Twitter |
Instagram |
YouTube
*
Know somebody who would like to be added to these email updates? Send me their email address and I will happily include them going forward.